01—Abstract
Summary
Summary of the 10-K/A filed January 30, 2002. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company reported fiscal 2001 (year ended October 31, 2001) net revenue of $45.2 billiona, down 7% from $48.9 billion in fiscal 2000, with U.S. revenue down 13% to $18.8 billion and international revenue down 3% to $26.4 billion.
Earnings from operations fell to $1.44 billionb from $4.03 billion, and net earnings dropped to $408 million, or $0.21 per diluted share, after the $272 million cumulative effect of adopting SAB 101 and a $56 million extraordinary gain. Gross margin declined to 26.0% from 28.3%. Earnings from continuing operations before taxes fell 85% to $702 million, reflecting $384 million of restructuring charges, $455 million of net investment losses, a $400 million litigation settlement with Pitney Bowes, and $53 million of net losses on divestitures.
Segment results were mixed. Imaging and Printing Systems remained the largest segment at $19.4 billionc in net revenue, though its earnings from operations declined to $1.99 billion. Computing Systems revenue fell 14% to $17.8 billion and posted an operating loss of $450 million, while IT Services grew 6% to $7.6 billion.
The company cut about 7,500 positions under its restructuring program, which it expects to save about $500 milliond annually. Cash flow from operations was $2.6 billion, and cash and short-term investments totaled $4.3 billion at year-end. The filing also highlights pending transactions that dominate the outlook.
HP signed a definitive agreement in September 2001 to acquire Compaq Computer Corporation in a stock deal estimated at $24 billion, with completion expected in the first half of calendar 2002, subject to shareowner and regulatory approvals. Members of the Hewlett family and related foundations have announced opposition to the merger, and a $675 million termination fee may apply in certain circumstances. HP also agreed to acquire the remaining shares of Indigo N.V. for an estimated $720 million plus contingent value rights.
02—Key points
Key Highlights
- Net revenue declined 7% to $45.2 billion in fiscal 2001, with Computing Systems down 14% and Imaging and Printing Systems down 5%, while IT Services grew 6%.
- Net earnings fell to $408 million ($0.21 per diluted share) from $3.70 billion, reflecting restructuring charges of $384 million, net investment losses of $455 million, and a $400 million Pitney Bowes litigation settlement.
- Gross margin fell to 26.0% from 28.3%, and earnings from operations as a percentage of net revenue fell to 3.2% from 8.2%.
- Computing Systems posted an operating loss of $450 million, while Imaging and Printing Systems earned $1.99 billion from operations on $19.4 billion of revenue.
- Pending acquisition of Compaq Computer Corporation for an estimated $24 billion, expected to close in the first half of calendar 2002, subject to shareowner and regulatory approvals and a possible $675 million termination fee.
- Restructuring program covers about 7,500 planned employee terminations, with annualized savings of approximately $500 million expected.
- Cash flow from operating activities was $2.6 billion, and cash and short-term investments were $4.3 billion at October 31, 2001, with dividends of $0.08 per share paid quarterly.
03—Questions
Frequently Asked Questions
Why did HP's earnings decline so sharply in fiscal 2001?
The decline reflected the global economic downturn, which reduced sales volumes across many product categories, along with lower gross margins, $384 million of restructuring charges, $455 million of net investment losses, a $400 million litigation settlement with Pitney Bowes, and $53 million of net losses on divestitures. Earnings from continuing operations before taxes fell 85% to $702 million.
What is the status of the proposed Compaq merger?
HP signed a definitive agreement in September 2001 to acquire Compaq Computer Corporation by exchanging 0.6325 HP shares for each Compaq share, with an estimated purchase price of $24 billion. The transaction was expected to close in the first half of calendar 2002, subject to shareowner and regulatory approvals. Certain Hewlett family members and foundations announced they would vote against the stock issuance.
How did the accounting change under SAB 101 affect results?
HP adopted SAB 101 in the fourth quarter of fiscal 2001, retroactive to November 1, 2000, which delayed product revenue recognition until delivery. The change was recorded as a cumulative effect of $272 million, net of taxes, reducing net earnings, and it moved about $1.0 billion of revenue into fiscal 2001.
What did HP's balance sheet and cash position look like at year-end?
Total assets were $32.6 billion and long-term debt was $3.7 billion at October 31, 2001. Cash and cash equivalents were $4.2 billion, and cash plus short-term investments totaled $4.3 billion. HP issued $1.0 billion of 5.75% Global Notes in December 2001 and had remaining shelf capacity of $290 million.
What legal matters could affect HP going forward?
HP paid Pitney Bowes $400 million to settle patent litigation in June 2001. Pending matters include a consumer class action over 'economy' ink cartridges, a Texas class action over floppy disk controller chips, a patent suit over LaserJet printers, a Cornell patent suit involving PA-RISC 8000 processors, and a shareowner class action related to the Compaq merger. HP believes none is expected to have a material adverse effect.
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